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Supreme Court Forecloses Reimbursement for Certain Internal Investigations Under Mandatory Victims Restitution Act
On May 29, 2018, the U.S. Supreme Court ruled in Lagos v. United States, 584 U.S. ___ (2018), that corporate victims of criminal offenses cannot recover expenses incurred from internal investigations that the federal government has neither requested nor required under the Mandatory Victims Restitution Act of 1996, 18 U.S.C. §3663A (MVRA). In its decision, the Court declined to address whether, going forward, such victims can recover costs from internal investigations initiated at the government's behest under the statute. Prior to this holding, a number of federal courts held that corporate victims were eligible for restitution for the costs incurred from their internal investigations and referrals to law enforcement — regardless of whether the government requested or required such investigations. These courts ordered restitution to reflect these costs on grounds that internal investigations: 1) are a foreseeable result of the crimes enumerated in the MVRA; and 2) provide invaluable assistance to government investigations and proceedings.
However, the Court's unanimous decision in Lagos effectively overruled these decisions and poses a setback for companies victimized by criminal conduct in determining what steps to take in reaction to the disclosure of the conduct. The companies likely have no choice but to conduct exhaustive internal investigations to identify the scope of the crime and to receive cooperation credit pursuant to the recently-updated Department of Justice Manual. See, U.S. Dep't of Justice, Justice Manual §9-28.000, Principles of Federal Prosecution of Business Organizations. In doing so, they should be aware of the real possibility that they cannot recover the costs incurred from these investigations through restitution and may have to pursue the funds solely through civil litigation. Should companies elect to minimize costs by declining to investigate internally — or by conducting a small-scale investigation — they risk the full extent of the crime remaining undetected and forego the ability to earn cooperation credit with the government. Moreover, public companies face the added dilemma of having to explain to their shareholders what steps they took to investigate the conduct and prevent future incidents, while also being mindful of the fiscal consequences of full-scale investigative work that might not be reimbursed.
The Emergence of Federal Restitution
Restitution is intended to restore a victim, to the extent possible, to "the position he occupied before sustaining injury." United States v. Boccagna, 450 F.3d 107, 115 (2d Cir. 2006). When a restitution statute applies, the government bears the burden of proving by a preponderance of the evidence the amount of loss that a victim sustained. However, a restitution award "need only to be a reasonable estimate of the victim's actual losses" and courts must resolve uncertainties in favor of the victim. See, United States. v. Donaghy, 570 F. Supp. 2d 411, 423 (E.D.N.Y. 2008).
Notably, federal courts have no inherent power to impose restitution and may only order it when authorized by statute. Before 1982, federal law permitted restitution only as part of a defendant's probation. Congress' enactment of the Victim and Witness Protection Act of 1982 authorized federal courts to impose restitution for victims of most federal crimes. See, 18 U.S.C. §3663(a). Fourteen years later, Congress significantly expanded federal courts' restitution authority in 1996 by requiring courts to impose restitution for certain enumerated crimes under the MVRA, including bank fraud, wire fraud, and most other white-collar crimes.
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